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These 3 FTSE 100 dividend stocks beat Shell’s 5.7%, but only 2 get my vote

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As income stocks go, FTSE 100 giant Royal Dutch Shell rates highly in terms of reliability and size. It hasn’t cut its payout since the Second World War and the forecast yield is a chunky 5.7%, based on the current share price. 

That’s not to say there aren’t bigger payers elsewhere in the index. Today, I’m looking at whether advertising firm WPP (LSE: WPP), broadcaster ITV (LSE: ITV) and holiday operator TUI Travel (LSE: TUI) represent better investments from an income perspective than the big oiler.

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Higher dividends

Up until recently, many market participants would have run a mile from WPP. The departure of founder Martin Sorrell and the loss of contracts saw the share price fall from a high of just over 1900p, to 800p in two years.

Based on yesterday’s trading update from the £11bn-cap, however, I think we might have already seen the bottom. It was certainly positively received by the market. 

But let’s not get distracted. While share price gains are nice, it’s dividends we’re focusing on here. On this front, it’s likely that WPP will return 60p per share this year, which equates to a yield of 6.4%. That’s more than Shell.

The extent to which payouts are covered by profits — how secure they are, in other words — is also likely to be higher at WPP (1.6 times vs 1.4 times).

ITV is another generous dividend payer, offering a forecast 6% yield in 2019 covered 1.7 times. The shares, however, remain depressed with ongoing concerns over dwindling advertising revenues. Recent news on the Britbox streaming service wasn’t exactly met with huge enthusiasm, either. 

Nevertheless, I still think ITV’s stock looks great value considering the consistently high returns on capital the business generates. The potential of its Studios division doesn’t seem to be sufficiently factored into the valuation and the idea that a suitor may launch a takeover bid remains realistic.

So, while I need to be wary of confirmation bias, I’m likely to add to my holding over the next few months. Shares still change hands at just 10 times earnings.

Holiday firm TUI has also seen its share price drop significantly in the last 12 months. The company’s valuation is now roughly half what it was in April last year. 

Yielding 6.4% in the current financial year, the shares offer a similar level of income as WPP. The level of dividend cover is, however, lower at 1.4 times profits and I don’t see this improving in the near future.

The recent grounding of its fleet of Boeing 737 Max planes isn’t ideal for business and likely to cost the company a minimum of €200m, according to management. That’s particularly problematic given that TUI operates in an already highly competitive and cyclical sector.

If I were concerned with generating income, that’s not something I’d look for in an investment.

Bottom line

Based on the extent to which dividends look likely to be covered by profits, I think WPP and ITV could be excellent additions to a large-cap, income-focused portfolio. But perhaps alongside rather than instead of Royal Dutch Shell. 

While the advent of electric cars and rush for sources of renewable energy will impact on the demand for oil over the long term, I don’t see any reason for those already invested in the latter to panic just yet. I’d give TUI a miss. 

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Paul Summers owns shares in ITV. The Motley Fool UK has recommended ITV. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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